Sino-Forest says it 'welcomes' OSC probe, shares jump

Canada's largest capital markets regulator has opened an investigation into Sino-Forest Corp., the Toronto Stock Exchange-listed company whose operations in China came under intense scrutiny last week when a report claimed that assets and revenues had been overstated

Sino-Forest said Wednesday that it “welcomes” the OSC investigation and has “formally” requested that regulators including the Toronto Stock Exchange investigate trading in the company’s shares by Muddy Waters and Mr. Block “and anyone associated with these persons in advance of” the release of the Muddy Waters report.

Canada’s largest capital markets regulator has opened an investigation into Sino-Forest Corp., the Toronto Stock Exchange-listed company whose operations in China came under intense scrutiny last week when a report claimed that assets and revenues had been overstated.

It is the general policy of the OSC not to indicate whether they have opened an investigation into companies or individuals. It is not clear why an exception was made in this case.

Sino-Forest said it expects the issues addressed in the OSC probe “will be consistent” with an internal investigation being conducted by an independent committee of Sino-Forest’s board of directors.

“The company expected the OSC to take this step given its responsibility as the public regulator and the recent unusual trading activity and volatility in Sino-Forest’s stock price,” the firm said, adding that the regulator would also be prompted by “the allegations contained in Muddy Waters’ report.”

The firm said it also intends to request an investigation by the Singapore Exchange Ltd. related to trading of the company’s bonds.

The report on Sino-Forest by short-seller Carson Block of Muddy Waters Research, caused Sino-Forest’s stock price to plunge. The stock was halted, but when trading resumed the shares plunged further.

Ratings agency Moody’s further spooked investors when it placed Sino-Forest debt under review for possible downgrade.

Sino-Forest officials have denied the claims in the Muddy Waters report. At least two Canadian analysts who track the company have also refuted the claims.

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